In its last Monetary Policy Committee meeting, State Bank of Pakistan has kept its key interest rate unchanged, signaling that it will pause its tightening cycle as record-high inflation may have peaked.

Its key rate, therefore, remains at a record high of 21%. Needless to say, the central bank has raised the rate by 1125 basis points since April 2022 to curb soaring inflation. I am a medium-scale entrepreneur based in Lahore.

In my view, 21 percent interest rate is still too high for large and small businesses alike to do business. Leaving key interest rate at 21 percent is no plausible response to the current state of economy. I also believe that high inflation is a clear outcome of higher interest rates; it’s not the other way round.

Why have our policymakers lost sight of the fact that Turkey’s President Recep Tayyip Erdogan has promised to continue with his unorthodox policy of cutting interest rates to reduce sky-high inflation? His gamble has at least protected domestic production. In our case, however, there is a massive economic slowdown in the country with higher interest rates one of the reasons behind it.

Moreover, higher interest rates have woefully failed to tame rising inflation. The situation underscores the need for articulating creative solutions. Lowering interest rates by at least 300 basis points in one go could be the right solution.

Shahid Subhan (Lahore)

Copyright Business Recorder, 2023